May 21, 2008

Restaurants and the economy, part deux

A couple of features reporters are working on a story about how local restaurateurs are dealing with the current economy. Are they passing rising costs onto consumers? Shrinking portions? Cutting back on specials? Charging for bread? Sending their kids to Towson instead of Harvard? (Just kidding about that last one.) Or are they adopting a wait-and-see attitude and hoping this, too, shall pass?

I'm hoping the reporters will start by reading one of my all-time favorite posts, Restaurants and the Economy. Not because of what I said, but because of the fabulous comments in response.

Still, there's some kind of story there, so my editors would like me to ask you if you've noticed any changes at places you eat regularly that could be because of the economy. It would point the reporters in the right direction. And if you're willing to talk on the record for the story, that would be even better. Just e-mail me as soon as possible, and I'll pass your contact info along.

Comments

We have continued to eat at our favorite restaurants over the past couple weeks and have not seen a major drop off in business. I think only 3 or 4 times in the past month that we have not had to wait for a table. In the places that we did not have to wait we either went during an off hour or usually never wait when we go there.

My DW and I have noticed a small drop-off in patronage: Wait times are shorter and we can easily get into places we had to wait for before. Also, the price for a lunch-sized serving of some dishes is what the dinner portion cost last year (and the dinner portion is noticeably higher). So far we are still eating out about the same as before at, mostly, the same places.

We almost never go to "mid range" "family" restaurants anymore; although we used to go up to several nights a week. We now go out once about every other week and upgraded to only going to one "nice" restaurant. We are personally feeling the gas and food prices very deeply and I feel that if we're going to go out we should save it for when we can go out for great food. Okay food we can have at home. I will say that I have not noticed restaurant prices inflating or portion trimming much - although as I said, we don't get out as much anymore!

Just had lunch at Italian Garden in Towson. Haven't been there in a few weeks, but the lunch crowd seemed down. In the past, at lunch time all seats were generally filled. Not so, to-day. Filled to about 80%. Given the usual lunch crowd there, in the past, it would appear its the economy, stupid.

A VERY interesting snapshot of the situation: The CPI-U (for cities) shows that price increases from March 08 to April 08 (not seasonally adjusted) was:Food at home = +1.3%
Food away from home = +0.3%

Collect all the anecdotes and conjecture you like, but the difference between the CPI increases for at home and away from home food is HUGE. Inflation for home food rose at an annual rate of 15.6% which is very high. In contrast, for away food the rate was only 3.6%, which is good. That surprising fact should inform your interviews of people. Good luck.

I've actually noticed the opposite in terms of crowds when it comes to places in Fells and Canton, in particular. Used to be, you could go out on a Saturday and maybe expect a short wait, but the past couple of times we've tried it, places have been packed (Annabel Lee and Matthew's come to mind; and there were others...). You can hardly get into the lot with Austin Grill, Chesapeake Wine, etc. on a weekend night.

ESTIMATED MONTHLY SALES FOR Food services & drinking places are up 4.6% for the first four months of 2008. That's an annualized increase in restaurant sales of 13.8%. Each month saw individual growth when seasonally adjusted (different number of days and trading days from month to month).

So we know that consumer inflation for eating out is well within the boundaries of the last 15 years and not bad right now. We also know that restaurant sales are still increasing at a very respectable pace compared to MANY other industries where there had been contraction.

What we know is that inflation is not a problem for consumers and that restaurants revenues are increasing at a healthy rate. But what about profits? You can't assume that inflation is the same for grocery stores and restaurant wholesale suppliers, due to economies of scale, cleverness, substituting items on a menu when prices fluctuate, etc. I don't have any good data on that.

I think that certain places are immune to recessions, such as Outback Steakhouse, Cheesecake Factory and the like, or ilk, depending on your views.
Not so trendy places are taking a hit, in my opinion.
A neighbor of mine works at the Trolley Stop in Catonsville/Ellicott City, and they have definitely noticed a difference. Their business is way off.
My son works at Cheesecake Factory in Columbia and they just about always do a good business, according to him.

TY RtSO, but I HATE micro, because it involves psychology which I feel is a double fraud. I'm a macro dude. Word. I'm sure Milton Friedman is rolling in his grave at your comment (if he is dead, I really don't know)

I think SusanWNAJ is onto something. When the herd takes flight as the predators pursue, the weakest fall behind and become prey. That's not so much economics as it is logic or natural selection, which economics should be. So the current non-recession slowdown in growth weeds out the weak gazelle restaurants and makes the herd stronger. Stress brings out the best and leaves behind the rest. Does it help that i made it rhyme?

And for the record I dislike the Chicago school of thought. I like the Istanbul school (which was once Constantinople).

Darwinian economics, cool. Harsh? Yeah, but that's the way it goes maybe. Dispute me, I will.

The idea that chains are immune are immune from recession - why? If that's true, then why? The real problem here is energy and some food inflation, not recession. Inflation is more pernicious because it effects everyone directly. Chains have some benefit because they can be more efficient, but they also have extra layers of management and the need to pay stockholders sometimes which adds to costs. Thoughts?

I think that there will be chains that are hit. I just think that certain trendy chains are pretty much immune.
There are too many people that can't think for themselves. They buy into the advertising that Outback Steakhouse or Cheesecake Factory (and others) are the cool places to go. After all, in America now, image is everything.
Not that I'm a cynic or anything :-)

voodoopork wrote: "The idea that chains are immune are immune from recession - why? ... Thoughts?"

For many people, when they think of "eating out" they go to a chain. The food is generally palatable, the prices affordable, and the overall experience what they are looking for. Because these are "special occasion" meals, if the price goes up a bit, or the portion sizes go down a bit, it doesn't matter. They are satisfied. If they are visiting family in another state, they know what they will get at a chain. And there are many, many more of them than there are sandbox inhabitants or visitors. If only 0.1% of them go out to a chain restaurant for dinner on any given night, it is enough to keep the chain going.

In terms of economics, the demand for chain restaurant food is relatively inelastic - it doesn't change much as prices change.

Re: recession-proof chains. If it's true, maybe it's because people know what to expect from their favorite chains. If you've always had a favorite dish at, say P.F. Chang's, you can count on enjoying your meal there, rather than taking a risk at a locally-owned place you may not know. If you're eating out less, you may be less likely to take a risk. And that confidence that you know what to expect is probably comforting in uncertain times.

Not, mind you, that I'm advocating for chains over locally owned restaurants. Just speculating about the mindset.

Can anybody think of chain restaurants that HAVE closed? I live in the city so I don't see them much. I remember there was a Chili's at Belvedere Square and then there wasn't. One would proabbly need to distinguish between ones that are franchises, since non-franchised outlets could lean on the corporate coffers when in a slump. Have any chains in the Inner Harbor gone under? Legal Seafoods did. I'm sure there's a packed Cheesecake Factory in Hell.

Didn't Chili's at BelSquare close because they had such a big problem with robberies there? That's the story I always heard. They were one of the highest-grossing stores in the chain, but the robberies just did them in. Wonder why Ryan's Daughter doesn't have the same problem...

I'm not sure I buy the argument that prices at chain restaurants are inelastic. If that were the case we would have seen far greater price increases from that industry.

Now, I would say that chain restaurants are not the most price sensitive industry. To a large segment of the population the cost of cooking dinner for the family is higher than cost of buying dinner at TGI Apple Rubies.

I think, however, that the great growth of chain restaurants was going to slow down regardless of the economy. For the most part, meals per person are a fairly fixed number. Most people, unless you are Henry VIII, will eat 3 three meals a day seven times in a week. When I was a kid, back in the 80's, eating out was a once week treat. Now, kids eat out 4 times a week. It is inevitable that future growth will not equal what we've witnessed over the past 20 years. Now, the slowing down of the economy may actually lead to a decline in the number of meals eaten out, or it could result in just slower growth. The point is the growth was going to end anyway.

I guess in today's world not growing is the same as shrinking. I've never bought into the idea that you have to grow. The world is full of examples of restaurants that 'lost their way' when they tried to expand. Personally I'm glad there is not a Tersiguel's Deux.

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About this blog

Richard Gorelick was appointed The Baltimore Sun's restaurant critic in September 2010. Before joining the paper staff fulltime, he contributed freelance criticism and features articles about food to area and regional publications. Along the way, he dispatched for short-distance trucking companies, shilled for cultural non-profits, and assisted in cognitive neurology research – never the subject, always the control.

He takes restaurants seriously but not himself, and his favorite restaurant is the one you love, too.